The National Small Savings Fund (NSSF), generally considered as a piggy bank for the government, has turned out to be a burden on the exchequer.
NSSF is blamed for pushing the government for an extra market borrowing of Rs 52,000 crore in the current financial year. However, at the outset it has not performed badly in financing the government’s fiscal deficit in the first five months of FY12.
Till August, the Fund has contributed as much as Rs 7,100 crore, against the government’s expectation of Rs 94 crore for the entire FY12. This means, 7,537 per cent of what was estimated for the entire financial year in terms of financing the Centre’s fiscal deficit, has come in the first five months.
However, if one goes into the details of the accounts provided by the Controller General of Accounts, it becomes clear that the picture is not as rosy for the government.
In fact, Rs 24,182.46 crore should have come to the government’s kitty by issuing securities against small savings in this Fund. The government rather repaid Rs 366.89 crore to NSSF because some papers came for maturity.
State governments take a majority of funds from NSSF, while the Centre takes only 20 per cent.
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The government also expects NSSF will show a negative balance of Rs 11,000 crore by the end of this financial year, against the surplus of Rs 7,100 crore it is showing till August, say finance ministry officials.
The finance ministry has estimated deposits under the small savings scheme will further come down because of higher interest rates offered elsewhere. This apart, it will have to pay interest on public provident funds and other instruments as on March 31, 2012, which will show a negative balance in NSSF’s income and expenditure as against the current surplus of Rs 5,908.18 crore.
The finance ministry officials said the government would not only be deprived of Rs 24,182 crore that it was to get from NSSF but would also have to replenish the Fund to the tune of Rs 11,000 crore since it will show a negative balance.
Besides, the finance ministry had estimated Rs 33,000 crore in cash balance as on March 31, 2011 (revised estimates). However, it got only Rs 16,000 crore. Officials partly attributed this to falling deposits under the small savings schemes of NSSF as well as other factors, which will be known once accounts are finalised by November.
| SOURCES OF FINANCING FISCAL DEFICIT As at the end of August 2011 (Rs crore) | ||||
| Budget estimates 2011-2012 | Actuals@ up to August 2011 | % of actuals to Budget estimates | ||
| Current | COPPY* | |||
| External financing | 14,500.00 | 1,575.69 | 11 | 49 |
| Domestic financing | 398,316.57 | 271,946.94 | 68 | 39 |
| (a) Market borrowings | 358,000.00 | 250,117.16 | 70 | 46 |
| (b) Securities against small savings | 24,182.46 | -366.89 | -2 | -4 |
| (c) Deposit scheme for retiring employees | 0.00 | -1.07 | — | |
funds, insurance corporation etc.
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of surplus cash
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Source: Controller General of Accounts
This deficit of Rs 17,000 crore, along with Rs 24,182 crore and Rs 11,000 crore, roughly sums up the additional borrowing of Rs 52,000 crore that the government is going for in the second half.
Currently, most banks are taking fixed deposits at 9.5 per cent for the period of one year, while the returns on small savings are around eight per cent with tax benefits.
“Interest rates offered by other instruments are higher than small savings, because of which the funds are shifting there,” Prime Minister’s Economic Advisory Council Chairman C Rangarajan has said.
However, economists said the government faced other problems as well, besides declining deposits under small savings schemes.
The government’s tax collections and non-tax receipts were falling short of target, explained Anis Chakravarty, director, Deloitte, Haskins & Sells.
The government has collected Rs 1.45 lakh crore from tax collections till August, which is around 22 per cent of the target for the entire financial year. Around same time last year, tax collections accounted for around 26 per cent of the estimated revenues for entire 2010-11.
Similarly proceedings from spectrum sale for 3 G services and broadband access had made non-tax revenue collections till August last fiscal sharply higher than this fiscal. Non-tax revenues were just 43,655 crore, which accounted for 34.8 per cent of estimates for entire fiscal. By this time last fiscal, collections from non-tax revenue constituted 102.8 per cent of estimated figures for entire 2010-11.
In this scenario, most economists do not expect the Finance Ministry to stick to its 4.6 per cent of GDP target for fiscal deficit this fiscal as already 66.3 per cent of the estimates have been touched in just five months of this fiscal.